The ECB’s Hesitancy Harbours Dangers

At its meeting today, the Governing Council of the European Central Bank (ECB) did not make any changes to the ECB’s interest rate policy, nor did it take a final decision on the phasing out of its asset purchases scheduled for the end of this year. Professor Friedrich Heinemann, head of the Research Department “Corporate Taxation and Public Finance” at the Centre for European Economic Research (ZEW), offers his view on the matter.

“The ECB’s hesitancy to finally formalise the end of asset purchases for the end of this year is strategically imprudent and dangerous. In response to the escalation in the budget dispute with Italy, it would have been better to communicate a clear decision. ECB President Mario Draghi should make it unmistakably clear that the finance ministers of the Eurozone can no longer hope for financial aid from the central bank from 2019 onwards.

The indecision displayed by the ECB’s Governing Council might prompt the Italian government to think that the ECB might postpone the phasing out of their asset-purchase programme if Italian bond spreads rise too sharply. With its purchases of Italian bonds, the ECB has indirectly financed Italy’s entire budget deficit since 2015. Now it’s time for cold turkey. The earlier it begins, the better for the patient.”

For further information please contact:

Prof. Dr. Friedrich Heinemann, Phone +49 (0)621-1235-149, E-mail friedrich.heinemann@zew.de